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US sanctions on Iran raise concern in Turkey

November 8, 2018

Turkey has been exempt from oil sector sanctions imposed by Washington on the regime in Tehran. But Turkish businesses fear the possible consequences of a likely shift in Donald Trump's mood toward Turkey.

Trucks waiting to cross the Turkish-Iranian border at Bazargan
Image: Isna

The Trump administration announced sanctions against Iran earlier this week, with a strong focus on hitting the country's oil and petrochemical sectors especially hard. So far, however, Turkey and seven other nations have been spared the US president's wrath as they were allowed to continue importing Iranian oil.

Read more: Iran sanctions: US exemption of Chabahar port relieves Afghanistan

But the six-month exemption from the ban granted to Turkey seems only cold comfort for the country's companies and businesses, which have enjoyed booming trade with Tehran in recent years. They fear a massive slump in their business with the neighboring regime.

Umer Kiler, head of the Committee for Turkish-Iranian Trade Relations within the Council for Foreign Trade (DEIK) considers the American sanctions as the "lesser evil." What worries Turkish business leaders more, he says, is the temporary nature of the exemptions for Turkey because they had hoped for complete sanctions relief.

"Turkey is the country which stands to be the most affected by the sanctions. That is why we'd initially thought the US administration would adopt a more considerate approach," Kiler told DW.

'We're not seeking regime change in Iran'

After the new sanctions regime has come into effect on Monday, all the Turkish trade official is now hoping for is a partial relief for some sectors of the economy. "What we are demanding is improvements for trade in the oil and gas sectors. No matter how long the sanctions will remain in place, it's impossible for us to completely shutter trade in those sectors because of our common border with Iran. The traders will always find a loophole."

Read more: Opinion: Iran's options are either sanctions or corruption

What gives Kiler hope in this respect is the recent rapprochement between Washington and Istanbul, which he hopes will have a positive effect on Trump's willingness to exempt Turkey from the trade embargo for a longer period of time.

Whipsaw trade

Over the past three decades, trade between Turkey and Iran has seen ups and downs. From a meager $1 billion (€880 million) in 1996, goods exchanges grew significantly during the presidency of current Turkish leader Recep Tayyip Erdogan, with a peak reached in 2012 when $22 billion worth of goods and services were traded.

However, bilateral trade has fallen substantially over the past five years, slumping from $21 billion to $10 billion in the period. While Tehran in the past exported primarily oil, Turkish cross-border shipments were mainly gold to pay for it.

Read more: Turkish delights in Montenegro entice entrepreneurs

As a result, the trade balance between the two countries used to be skewed in Iran's favor up until 2016, when Turkey's exports grew to $5 billion overtaking $4.7 billion worth of imports from its neighbor for the first time ever.

Volumes changed back in Iran's favor in 2017, with Istanbul suffering a trade deficit that year of $4 billion. While Iran has continued to ship primarily oil, Turkish exports now include a range of manufactured goods such as automobiles, machinery, textile and food products.

The latest trend of falling bilateral trade was manifested in data released recently by the Council of Turkish Exporters (TIM), showing that cross-border shipments reached only a volume of $1.8 billion in the first nine months of 2018. The main reasons for the downturn given by the industry group was US pressure exerted on those countries doing business with Iran, and secondly, higher taxes on Turkish exports imposed by Tehran.

Traffic at the Esendere checkpoint on the Iran-Turkey border
Thanks to exemptions granted to Turkey, cross-border traffic at the Esendere checkpoint to Iran hasn't slowed down in the wake of US sanctionsImage: Getty Images/AFP/B. Kilic

Mixed picture

Bulent Aymen, deputy chairman of the Union of Mediterranean Exporters (AKIB) says Iran is traditionally a major competitor of Turkey in a number of markets and sectors in the region.

Nevertheless, a weakening Iranian economy will have "consequences for Turkish companies doing trade with Iran," he told DW.

Read more: How healthy is the Turkish economy really?

Other experts are not convinced of the negative scenarios for Turkey. Eyup Ersoy, Middle East expert at Bilkent University, says he thinks US sanctions are mainly targeted at Iran's energy and financial sectors and won't impede trade in goods.

"Sectors outside oil will only be indirectly affected by the sanctions," he told DW. Ersoy is also convinced that a further thaw in US-Turkish relations will lead to more sanctions relief for Ankara, substantially benefiting the oil trade between the two countries.

Nevertheless, he thinks that if Washington won't prolong the exemptions, Turkey will find ways to secure supply and limit the effects of an oil embargo. "For Turkey to find alternative solutions doesn't mean a lot of risk and higher costs," he told DW.

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